National Merit pays significant Stipend (1K to 4K per semester) in addition to Tuition. Is this fully taxable? Who must claim it as Income if the child is over 18? A parent or does it have to be Child?
Also, if it is considered income for the child, can we open a traditional IRA with this money to defer taxes?
@bjrap00 - I think you are confusing a specific school’s “National Merit” scholarship program with the one run by NMSC. The official NMSC does not include a stipend that I am aware of. If the school offers a stipend as part of its program (Alabama, UCF, UTD for example) it will most likely be income. The way you will know for sure is when you get the 1098-T at the end of the year.
I am not sure how stipend programs work. Usually, I think you need to request funds for a specific reason, e.g., buying a computer, paying for travel to a conference, supplies for research etc. I may be off base on that part, so don’t take it as gospel.
Actually, at UTD you automaticallly receive the stipend each semester that goes into your bank account with one exception. At UTD, if you stay in campus housing you do get an additional $3000/yr and that amount goes directly to student housing. You do have to pay income tax on the amount of the stipend amount less books. Since UTD pays tuition and fees directly, those are not taxed. The stipend amount is included on your child’s taxes. I don’t know if you could use that money to put into an IRA because I don’t think it is considered earned income but I could be wrong. I do use H&R Blocks free tax service to prepare my daughter’s taxes because they do cover this situation. I don’t think Turbo Tax does.
@usma87 If you are a National Merit Scholar, you do get a small stipend from the foundation. Only top 2,500 finalists get it, all others have to find a participating college or company to sponsor them to become scholars.